Conclusion

ASEAN countries have adopted a policy of moving toward open skies in recognition of the important role played by transportation and in particular the aviation sector in linking these mostly export-oriented economies with the global economy. Given the region's history of planned development and cautious approach toward liberalization, it is not surprising that this liberalization is staged over several years with 2015 as the deadline for the attainment of open skies in ASEAN.

Is Malaysia poised to gain from open skies in ASEAN? The review of infrastructure development in this paper shows that Malaysia has invested substantially in overall infrastructure development, including airports, in its pursuit of economic development. This overall focus on total infrastructure development places Malaysia well ahead of most of its regional neighbors in the competitive ladder, with the exception of Singapore. While investment in infrastructure also aids in the development of KLIA as a regional hub, other member countries within ASEAN, notably Singapore and Thailand, have also followed a similar investment-intensive strategy to develop their international airports, namely Changi and Suvarnabhumi, as regional hubs.

However, privatization of MAS has not yielded the textbook benefits of greater efficiency and competitiveness. Instead the huge losses sustained during its foray into privatized hands have caused the government to resort toward re-nationalization and a renewed effort to improve the competitiveness of the national carrier. The opening of a LCC in the country has forced MAS to be more competitive. Similarly, the liberalization of the lucrative Kuala Lumpur–Singapore route will also continue to increase the competitive pressures on MAS. Although the new management has managed to turn MAS operations back to profitability, it has still a long way to go in terms of competing against other national carriers such as Singapore Airlines and Thai Airways as these two airlines have formed an alliance with the leading global airlines alliance group in the world.

Nevertheless, the dream of turning KLIA into a regional hub is not infeasible despite the existence of two formidable hubs within ASEAN as KLIA is improving in its performance. There are also examples of multi-hubs in other regions such as the Tokyo, Seoul, and Hong Kong hubs in Northeast Asia. In order to realize this dream, several measures are recommended.

First, it is imperative for the national carrier, MAS, to join a strategic global alliance group to improve its traffic feed. Second, the construction of a new LCCT at KLIA needs to be accelerated as Air Asia is in a vantage position to gain from the increased opportunities provided by the ASEAN Open Sky agreement. It will also require the government to review its strategy to build a regional cargo hub at Senai. Instead, it should refocus on the development of KLIA as a regional hub for both passenger and cargo traffic. However, although infrastructure investment is important, it is not sufficient to guarantee the realization of KLIA as a regional hub. Concurrently, the promotion of tourism in the country, especially to non-ASEAN countries has to focus on a distinctive product appeal that will enable it to differentiate its tourism products from those of regional competitors.

Ultimately, it is not just the liberalization of the aviation sector alone that is needed for the development of KLIA as a regional hub. Instead the jockeying for regional hub status from KLIA against established hubs in Singapore and Bangkok and the increase in supply in each of these airports implies a greater need than ever for an integrated ASEAN market and this can only come about with the realization of the ASEAN community. Malaysia's dependence on the external economy and its relatively small domestic economy (26 million in 2006) as compared to some of its ASEAN neighbors such as Indonesia and Thailand makes it even more dependent on the region for scale economies than others. Consequently for Malaysia, it is the realization of the ASEAN Community that is of primary importance for its economic growth and for the attainment of its goal to be a regional hub for passenger and cargo traffic.

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